In Andrew Ellis and Jane Bromley v HMRC [2021] UKFTT 0343 (TC), the FTT allowed the taxpayers' appeal against a refusal by HMRC to allow a second claim for repayment of VAT under the DIY Housebuilders' Scheme (the Scheme), in respect of supplies of goods used to construct a dwelling house.

Mr Ellis was a builder and applied for planning permission to demolish and replace the taxpayers' three-bedroom bungalow with a four-bedroom dwelling. Permission was granted, and the taxpayers spent five years constructing the property. In 2015, during the construction, the Council assessed the property for council tax purposes, but there was no suggestion that the works were completed. To improve cash flow, the taxpayers made an interim claim for repayment of VAT under the Scheme in 2017 (the 2017 Claim), and a subsequent claim in 2019 (the 2019 Claim).

VAT Return 431NB, which Mr Ellis used to make the 2017 Claim, did not request confirmation that the construction was completed and indicated that a valuation was satisfactory evidence to allow a repayment claim to be made. The guidance notes (which were not legally binding) indicated that only one claim may be made in respect of one building and the claim must be made within three months of completion. A VAT repayment was made in June 2017 in respect of the 2017 Claim. The 2019 Claim was rejected by HMRC on the ground that only one claim can be made under the Scheme within the three-month time limit.

Under section 35, VATA 1994, HMRC is required to refund VAT charged on the construction of a residential building. Section 35 does not expressly prevent more than one claim for repayment being made. Section 6, Interpretation Act 1978, confirms that a reference to "a claim" must be read as including "claims". The FTT noted that none of the provisions of VATA 1994 restrict a self-builder to making one claim only on completion of the development. The FTT decided that Regulation 201, VAT Regulations is ultra vires in requiring evidence of completion of a dwelling prior to a claim being accepted, as this would limit the scope of section 35. In the view of the FTT, the Council's re-banding of the property in 2015 was not evidence of completion of the works, but merely evidence that some building works had been undertaken and the dwelling could be inhabited.

The FTT therefore allowed the taxpayers' appeal.

Why it matters: Given that HMRC's guidance is inconsistent with the FTT's decision, it is likely that HMRC will seek to appeal this decision. Subject to any successful appeal by HMRC, this decision will assist other DIY builders of residential buildings seeking to secure a cash flow advantage by make multiple VAT repayment claims during the course of a project.

A copy of the decision can be viewed here.